As much as it galls me to say it, I think the 80-some Republicans who voted against taxing the AIG bonuses* at 90%** are right, in their stopped-clock kind of way. The tax is a Bad Idea.
Granted, it's a Bad Idea that feels good -- I don't want the folks responsible for burning down our economy to get a trophy and a pat on the back, let alone millions of bucks for the experience. I spent all week being pissed off at those bums. But the more I think of this 90% tax, the less I like it.
I should be clear: I'm absolutely fine with a progressive tax system. If you have more, give more. I'm cool with that, and I'll try my hardest to be cool with that once I make my millions.
But this? It's not saving us a considerable amount of money. I mean, it'd be quite a bit if it showed up in my bank account, but compared to the overall cost of the bailout, it's a drop in the canyon.
No, this is revenge. It's using taxes as punishment. And that's not what taxes are for. I'd have no problem with regulations preventing bonuses like these from happening again. But taxing the bonuses that have already legally been given out? It's effective, and it's clever, but it stinks.
Worse yet, it's what the Republicans *say* Democrats use taxes for: to "punish the rich." Which generally isn't true, but in this case, well... yeah it is. Because this branch of AIG deserves punishment in such a big bad way that half the Republicans voted for the same damn tax. But come election time, this tax will be hung like an albatross around a lot of necks. So not only is it bad policy, but I think long-term, it's bad politics.
It's not about the money; it's about spite. That's no way to govern. Obama and the Democrats are on the wrong side of this one. Granted, the right side -- letting them have their bonuses -- well and truly sucks. But just because it's not fair doesn't mean stopping it by any means necessary is the right thing to do, even if it feels good at the time. If you're going to make a bunch of puppet companies, it's best to have all the strings attached from the beginning.
Rob
*and the bonuses at all TARP-assisted companies.
**if the employee's household makes more than $250K a year.
Friday, March 20, 2009
AIRRRRRRG!
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11 comments:
Agreed. Agreed. Agreed.
And, by the way, I love the title.
This may be one of the few things that me and Rob agree on politically (please forgive me dude, I am drunk as hell right now), BUT I agree totally this is putting lipstick on a pig. There are so many things wrong with the bailout, and as yous aid this is barely a spit in the canyon.
You're right, Rob. This isn't closing the door after the horse has left the barn. It's standing in the open doorway with a sniper rifle, shooting at the horse's ass as it recedes in the distance.
Honestly, if you can tease the psychology behind this spite tax out of the tangle of righteous and rightful indignation knotted around the bailout issues as a whole, its vindictiveness and careless willingness to abuse power feel positively Republican in character.
And that's really disheartening.
p.s.-- Sorry I had to delete and re-post the comment. I felt the need to clear up my phrasing.
Agreed. I have come to learn a little bit more about the ins and outs of this. The "bonuses" were created as a means of tax avoidance in the first place (though I'm not sure how). Bottom line, the idea was to pay a nominal salary, but their real compensation came in the form of the bonuses and now it's coming back to bite them.
But it's still bad politics and bad policy and it would never pass an even cursory constitutional review. Paul Krugman has a great writeup of the bonus tax that's worth a read.
Let me add my voice to the chorus agreeing about this.
It's just plain silly. A stupid, vindictive distraction.
Rob, I agree with everything you've said, but it's actually much worse than that. This isn't aimed at "the folks responsible for burning down our economy," it's aimed at a lot of people that had nothing to do with it other than working at the same company.
Suppose Brian Westbrook's contract says he should get $5 million per year (I have no idea what the right number is). If the Eagles come to him at the end of the year and say "Well, you did a great job but the team didn't make it to the Super Bowl, ticket sales are down, we're not paying you," how would that go over? Not only is it not fair (regardless of the size of his paycheck), he would surely go to another team that would pay him the market rate and the Eagles would be much worse off.
There were only a few people at AIG in a position to know how much risk they were taking on overall (like the former CEO who was happy to not worry about it). Many people there had nothing to do with mortgages or credit swaps, and were in no position to know about, or do anything about, the stuff that wrecked the place.
Further, people want to work for companies that are growing and prospering, not ones going down the toilet. You can't keep the employees you need if they think they won't be paid, so this whole stunt is just going to make the 80% of AIG that was bought with tax dollars completely worthless.
As an example, check out this guy who agreed to continue working for AIG for a $1 salary and a (large) guaranteed bonus when the company was having problems. He had nothing to do with credit swaps, and he was making money for the company, but now they want to take away the bonus they promised him, so he quit. How does that make AIG or the taxpayers that own it any better off? How is it fair?
The people who really should be held responsible are the former CEO and other higher-ups in the company, and the regulators (and by extension Congress) that were ultimately responsible for making sure excess risk wasn't taken.
Sidenote to chrisready: Bonuses have nothing to do with dodging taxes. You pay income tax on them just like anything else. Wall Street bonuses are about locking people into their jobs and working their asses off. If you quit part way through the year, you walk away from a big chunk of your compensation. If you don't work hard enough (or are incompetent) and you get fired, you miss out on a big chunk of your compensation.
You raise some good points Bill -- in fact, I seem to recall reading a similar post by Kevin Drum (that I can no longer find) that said that bed actors at AIG-FP had long since cleared out, and that the bonuses were going to people left behind to clean up their mess. (And certainly, back in the days when I received a bonus, it was taxed.)
(Also, thanks for linking to that Rolling Stone story -- it's really incredible, and everyone should read it, despite its length. Excellent and terrifying.)
On the other hand, I've read that a lot of these "retention" bonuses were being paid to people who had already left the company. I don't get how that could be so.
Today Josh Marshall had a good piece up on TPM. The whole thing is worth a read, but here are the three most salient paragraphs regarding DeSantis:
On the one hand, I can understand the argument of Jake DeSantis, the AIG executive who says he agreed to stay and work for a year in exchange for a big bonus, was repeatedly assured he'd get it, and then was muscled into giving it up after a big popular outcry. 'A deal's a deal' is always a strong argument.
On the other hand, when the public is funding the project, you're just inherently out on a limb when you say: "Okay, I put in my year of work. Where's my $1.5 million?"
When the companies have come to the taxpayer hat in hand, begging for money, at that point you're into the average citizen's moral space, in which it becomes her or his business whether you really deserve that much money -- something that people just don't think is their business as long as you're talking about private corporations making or not making money in whatever way they're able.
As a taxpayer, I have to say that whatever it is that he did for AIG-FP, $1.5 million is more than I'm willing to pay for a single person to work a single year. I don't *care* what the rate for his talents are on the open market, since his employer isn't *in* the open market. And really, I don't want the taxes of me and everyone in my town to pay this guy's salary for a year.
Or to put it bluntly, when my company had to cut costs, I was shit out of luck, too.
I don't know what the solution is -- there's so much friction between the two ideas that they seem irreconcilable. If I were to make a rule off the top of my head, I'd cap the salaries/bonuses at $200 grand, and devote the rest of the money allotted to hiring investigative prosecutors to take care of Joseph Cassano and his ilk.
Because I'd really like to see some of those greedheads in jail.
I've read that a lot of these "retention" bonuses were being paid to people who had already left the company.
I'm not sure what that's all about. I can only guess that they were guaranteed a certain amount of money if they stayed until the end of 2008, and they left in early 2009, but I don't know. It does seem somewhat stupid that the bonuses weren't structured to encourage people to stay longer than that.
I don't want the taxes of me and everyone in my town to pay this guy's salary for a year.
I think that's where your thinking goes wrong. If he was profitable, it was the profit he generated that paid his salary/bonus, not the taxpayer. For the sake of discussion, suppose he was generating $10M per year of profit (probably not an unreasonable number if his bonus was in line with the market). He gets $1.5M, and AIG (i.e. the taxpayer) gets $8.5M. The taxpayer is making money off of him, not the other way around. If he quits, AIG's income drops by $8.5M per year.
He's an employee, not a slave. If you cap his compensation at $200k/year, he'll simply go to another company that is willing to pay more. Things may be bad on Wall Street right now, but I'm sure there are plenty of companies that would be willing to pay an employee $1.5M (or at least a lot more than $200k) if the employee is generating $10M for the company.
I don't know why I'm on this football analogy kick right now, but suppose the government decided to start an NFL team, and suppose they capped players' salaries at $200k. What kind of players would they have? Only the ones that sucked too badly to get hired by anyone else. What chance would that team have of winning? The derivatives world is very competitive, and having a team full of losers almost guarantees losing a lot of money (the taxpayers' money, in this case).
That's an interesting point about profitabilty. I hadn't thought of it that way. Then again, I've never worked at a job where my efforts can be directly linked to a figure of profit. (Which is why editors get paid crap. If you can't monetize it, boyo, you've got Sweet F.A.)
And I realize the cap I suggested is untenable. Of course anyone would jump ship to a solvent company. (If there are any.) But the friction between people making $50K and the people (who they'll pay with their taxes) making $1.5M is real, and it *has* to be addressed.
Otherwise, things will explode.
Seriously, after reading that Rolling Stone article, my first thought was: Someone's going to die because of this stuff. It feels like a slow apocalypse to me.
These "retention bonuses" are often referred to as "golden handcuffs" because they are large enough to force people to stay. The unusual part of the issue is that the bonus is such a large percentage of the salary (as compared to other fields) that it becomes a carrot of sorts that entices the employees to work lots of overtime to be considered a team player and thus be worthy of the bonus (i.e. not get fired).
I'm not sure how people get the retention bonuses after they have left either. The bonuses that I used to get were called "profit sharing" and were never mentioned in any contract at all. They were also taxed just like regular income. It was very clear that the amount was directly related to the profit that the company made that year. There were several years when I didn't get any "profit sharing" at all, even if I worked hard all year. On the other hand, I quit a job in August and didn't expect to get the bonus for that year. It was a nice surprise to get an unexpected check the following March for a prorated profit sharing check (especially since I was still unemployed at the time).
As for efforts being directly related to profit, this happens often in manufacturing. One company I worked for had a weekly bonus for a while that was directly related to reaching a goal of X dollars worth of product shipped. In spite of the small amount of the bonus (less than $100 per employee), everyone was extremely motivated to ship product, and there were charts and graphs posted to reflect how close we were to the goal.
An interesting side effect of the bill that passed in the House was to demonstrate the national outrage over this issue. Even if it was a bit of posturing to create something that would never pass in the Senate, it still made the news. Sometimes it seems like these people (in the financial industry) live in a bubble and don't realize than not everyone is making millions of dollars a year, nor is everyone getting a guaranteed enormous bonus.
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